Not all macroeconomic forces affect consumers equally. When governments raise interest rates, for example, it has massive impacts on the economy, but it often takes some time for there to be a trickle-down effect on most consumers. Moreover, ordinary people will not likely feel too much of a direct impact of raised interest rates unless they are trying to buy a house or finance a car. Currency valuations, on the other hand, tend to have a much more direct impact on the average person. This is especially true in European countries that do not use the Euro, where changes in the value of a nation’s currency drastically affect the average person’s purchasing power. Even if their currency is different, much of their goods are services come from the Eurozone. That is why experts say that average Russians will bear much of the brunt of global sanctions; although there were many news stories about countries repossessing the yachts of different oligarchs, everyday Russians will suffer the most in the coming years.
Up and down and up and down
In the weeks following Russia’s invasion of Ukraine, the ruble’s value fell by 40%, a record low. In response, Russia’s central bank decided that desperate times called for desperate measures. Primarily, they raise the country’s key interest rate from 9.5% to 20%. According to the ban, this increase was “designed to offset increased risk of ruble depreciation and inflation”. The bank also said it would be freeing 733 billion rubles (8.78 billion USD) in local bank reserves to boost liquidity. The Moscow Stock Exchange had been closed since February 25, but it reopened in late March with heavy conditions on who could buy and sell (economists feared too many large entities would try to offload every asset). The other main market “manipulation” was the government’s decision to restrict its citizens from transferring money abroad. Because people are being prevented from unloading rubles, that is artificially propping up the value. But according to people like US Secretary of State Antony Blinken, these government manipulations are not sustainable.
Sustainable or not, these measures were largely effective. Much to the surprise of experts, who predicted that the ruble would continue to fall, the currency has largely recovered, largely undoing the losses it suffered due to the war and worldwide sanctions. But top economic minds have a strong feeling about why that is: oil. Russia’s most effective method of keeping its currency afloat has been by demanding payments for its considerable oil and gas exports in rubles. While most European leaders have rejected this request and continue to pay in either euros or dollars, other countries have jumped at the opportunity to get cheap energy. India, for example, has dramatically increased its Russian oil imports, and has indicated that it will continue to buy discounted barrels.
Waiting for the drop
No one knows how long Russia can keep this going. Many countries are sending diplomatic teams to India to convince them to discontinue their Russian oil imports. The central bank has cut interest rates down to 17%, and within a few hours, the ruble fell by 5%, erasing some of the currency’s recovery. The only thing certain is that Russia cannot keep these measures in place forever, and the countries imposing sanctions are counting on it. The ruble, like the buck, has got to stop somewhere.